Personal Income And Consumer Spending Both Rebound In November - December 21, 2012

Personal income and consumer spending rebounded in November, following hurricane-depressed readings in October. Specifically, the U.S. Commerce Department reported, at 8:30AM (EST), that personal income had risen by 0.6% last month. That was better than the 0.4% gain expected, and notably ahead of the scant 0.1% uptick registered in October. At the same time, Commerce reported that consumer spending rose by 0.4% last month; expectations here had been for a gain of 0.3%. In October, spending had fallen by 0.1%, under pressure, no doubt, from the tragic disruptions caused by Hurricane Sandy.

Personal consumption expenditures--which track purchases ranging from cars and clothing to health care and travel--account for about two-thirds of the nation's gross domestic product. Hence, the results of this series are critical, and play a key role in assessing the health of the aggregate economy. In the third quarter, the solid gains in consumer spending had helped the U.S. economy grow by an upwardly revised 3.1% in the period. However, notwithstanding the nice recovery in spending in November, the damage from the aforementioned storm, the likelihood that inventories will be drawn down in the current period, and the probability that spending plans are being shelved, or at least delayed by the budget intransigence in Washington, suggest that growth in the fast-concluding quarter will be less than 1.5%.

Meanwhile, the gain in personal income was the largest in nine months. But the fact that income surpassed spending by 0.6% to 0.4% suggests that that many Americans, worried that the approach of the so-called fiscal cliff in early January could jeopardize the business expansion, are holding back on spending. And, last night, the failure of House Speaker John Boehner's Plan B to even make it to a vote, sent a further ominous message that we may yet go off of the dreaded cliff next month.

Overall, this was a decent report, but it does not alter the fact that the nation's economy slowed down materially in the fast-ending fourth quarter, with GDP growth, as noted, unlikely to even reach 1.5%. From there, the picture grows even more uncertain, as the nation seems on track to possibly go off of the cliff on January 2nd. Our sense right along has been that a deal will get brokered either by the deadline in the weeks thereafter. We still think that is likely, but our confidence level is moderating some this morning, especially in light of last night's goings on in the Capitol.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.